Phone: 250-212-2654 | cecile@cecileguilbault.com

 

The leaves are falling, but the sky is not! We know this year has had a lot of changes in the lending landscape, so let’s chat about what this means for you!


As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and here is your personal update from me on the recent Bank of Canada announcement on changes to their Overnight Rate which in most cases impacts your Prime Rate.

At 10:00 am EST, Wednesday October 25, 2017, the Bank of Canada maintained their overnight rate which means no change to your interest rate. I know you may be feeling the impact of the rate changes earlier in 2017, but you can feel at ease that your rate will stay the same for now.

In the last few weeks there have been additional changes in the mortgage legislation and qualifying guidelines all in the hope of maintaining stability in the real estate market as well as ensuring home owners and those with significant debt can handle future interest rate increases. These changes will impact your plans for borrowing funds in the future – whether it is refinancing to maximize the low interest rates and equity in your home, purchasing rental properties or moving up into a bigger home? Call me now for a complimentary consultation to review your current financial situation and let’s start planning now. These legislation changes don’t come into effect until January 1, 2018, so let’s make sure we get you prepared now and ensure the changes won’t impede your future borrowing plans.

To continue with the Bank of Canada news, here is an excerpt of the announcement and what they had to say about their decision on Wednesday:

“Canada’s economic growth in the second quarter was stronger than expected, and was more broad-based across regions and sectors. Growth is expected to moderate to a more sustainable pace in the second half of 2017 and remain close to potential over the next two years, with real GDP expanding at 3.1 per cent in 2017, 2.1 per cent in 2018 and 1.5 per cent in 2019. Exports and business investment are both expected to continue to make a solid contribution to GDP growth. However, projected export growth is slightly slower than before, in part because of a stronger Canadian dollar than assumed in July. Housing and consumption are forecast to slow in light of policy changes affecting housing markets and higher interest rates. Because of high debt levels, household spending is likely more sensitive to interest rates than in the past.

The Bank estimates that the economy is operating close to its potential. However, wage and other data indicate that there is still slack in the labour market. This suggests that there could be room for more economic growth than the Bank is projecting without inflation rising materially above target. Governing Council will be cautious in making future adjustments to the policy rate. In particular, the Bank will be guided by incoming data to assess the sensitivity of the economy to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.”

Based on this outlook, the Bank estimates that the economy is operating close to its full potential. But they have indicated that they will be cautious in making future increases in order to determine the impact of the adjustments earlier this year. Remember, taking advantage of these low rates is a great way to pay down your mortgage faster!

Fixed rates haven’t really changed at all since the last announcement, and are around 3.09% to 3.39% for a five-year fixed term.

Currently variable rate products are still lower than current fixed term rates, however if concern regarding impending rate increases is going to affect your monthly budget, locking in now might be a good option. Call me to book a complimentary consultation and let’s discuss your current financial situation. I’ll be in touch again for the next announcement on December 6, 2017.

I wonder if I can ask a favour, going with my theme of “Let the sun set and the leaves fall along with Canadian consumer debt with our help” if you hear a friend or family member talk about going through a financially tough time – maybe I can help with some budgeting, credit counselling and debt consolidation options for them. In either of these cases, would you mind passing my contact information on to them – this is very much appreciated.

 

Thanks!

April

 

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Update #4

 

RESTRICTIONS WILL BE PLACED ON CERTAIN LENDING ARRANGEMENTS THAT ARE DESIGNED, OR APPEAR DESIGNED TO AVOID LTV LIMITS

 

Mortgage lenders (excluding credit unions and private lenders) are prohibited from arranging with another lender: a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law. This is often referred to as “bundling” or “bundle partnership”.

What does this mean?


For example: a consumer applies for 80% LTV mortgage and the lender can only approve 65%. The lender then partners with a second lender for the additional 15%. The original lender then “bundles” the 15% LTV mortgage with the original 65% mortgage to form the complete 80% LTV loan. This is no longer permitted as per OSFI.

OSFI has implemented 3 new mortgage rule changes starting January 1, 2018

 

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Update #3

 

LENDERS WILL BE REQUIRED TO ENHANCE THEIR LOAN TO VALUE (LTV) MEASUREMENT AND LIMITS TO ENSURE RISK RESPONSIVENESS

 

Mortgage lenders (excluding credit unions and private lenders) must establish and adhere to appropriate LTV ratio limits that are reflective of risk and updated as housing markets and the economic environment evolve. We are awaiting more details on this policy from lenders. As we have new information, we will update this document.

What does this mean?


OSFI directs lenders (excluding credit unions and private lenders) to have internal risk management protocols in higher priced markets (sometimes called “hot real estate markets” like Toronto and Vancouver). This is a continuation of a policy already in place. Many mortgage lenders have been following the principles of the policy for the last 10 to 12 months.

OSFI has implemented 3 new mortgage rule changes starting January 1, 2018


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Western Investor’s annual take on the top five towns to place your real estate investments in Western Canada over the next year.



No. 1: Kelowna

The largest city – 127,800 residents – between Metro Vancouver and Calgary, Kelowna is the dominant trading center for the Okanagan Valley, B.C.’s third most populous region. Together with neighboring Vernon, West Kelowna, Peachland and Lake Country, the greater Kelowna area has a population of 256,216, up 7.4 per cent from 2011. It also has a blossoming high-tech sector, which has rocketed in the past few years into a $1.3 billion industry that involves more than 200 companies.

With one of the most temperate climates in Canada and a fertile land base, a rich array of ski resorts, vineyards within city limits and lakeside attractions, Kelowna is a major tourism destination, as well as a beacon for new residents – many from the Vancouver area – drawn by its recreational amenities and relatively affordable housing.

Here is a clue to what is happening: more new homes were started in Kelowna this year than in any area outside of the Lower Mainland, including Greater Victoria, which has three times the population of Kelowna.

We carry a full report on the Kelowna residential and commercial real estate opportunities in the B section of this paper.

Investment play: Land assembly of detached lots near downtown, courtesy of a January zoning change that encourages higher density. Also retail property, particularly for developers of badly needed new retail space in the downtown zone.

 

No. 2: Surrey

Vancouver’s booming suburb to the southwest won’t be a suburb for much longer. Within the next decade Surrey will overtake Vancouver as B.C.’s largest city. Around 10,000 new residents move to Surrey each year, and the entire South Fraser region – which includes Langley and Abbotsford – is projected to absorb 70 per cent of the entire region’s population growth over the next 25 years.

A key point: Surrey has a higher percentage of people aged 10 to 24 than the provincial average. Surrey is also home to one in four Metro Vancouverites under the age of 19.

South Surrey-White Rock is separated by farmland from the rest of the city, and is a focus for new single-family homes and townhouse construction. Newton is the heart of Surrey’s South Asian community, while Guildford and Fleetwood are more traditionally suburban in character. Cloverdale to the west has a rural flavor on the Langley border. And then there is Surrey’s new downtown, Surrey City Centre, where the 52-storey 3 Civic Plaza hotel and condo tower completes this year, and an eight-building medical-technology office hub is under construction, along with multi-family condominium projects.

Investment play: Multi-family rental apartments and rental condominiums. Based on recent sales, the average cost per door for a Surrey rental apartment building is $171,000, at least $50,000 below the Greater Vancouver average, yet the rental vacancy rate and rental rates are similar.

 

No. 3: Saskatoon

Saskatchewan’s commercial capital entered 2017 plagued by a prolonged period of historically low commodity prices and slumping real estate. But that has changed fairly quickly. A Saskatoon economic report published by the Real Estate Investment Network said Saskatchewan’s largest city has managed to rebound from a market downturn thanks to a recovering energy market and burgeoning real estate activity.

The oil recession caused a slight, 1 per cent decrease in Saskatoon’s GDP during 2016, according to Royal Bank (RBC).

However, Saskatoon’s GDP is expected to increase 1.8 per cent in 2017 and 2.3 per cent in 2018, RBC forecasts.

The fundamentals of the city’s economy are strong. Saskatoon had Canada’s third-fastest growing population of any metropolitan center, after Edmonton and Calgary, growing 12.5 per cent between 2011 and 2016. And as the headquarters of uranium giant Cameco and PotashCorp, the city is well positioned to feel the tailwinds of the next commodity super cycle.

Investment play: Retail investments near the River Landing District, where a $300 million development is underway along the South Saskatchewan River.

 

No. 4: Calgary

Calgary continues to feel the pain of low oil prices, but 2018 will be a turnaround year for real estate in Alberta’s biggest and most-watched city.

“There is little question that Alberta’s economy has rounded the corner and the worst recession in three decades is now squarely in the rear-view mirror,” the Alberta Treasury Branches (ATB) noted in its Alberta Economic Outlook, released in August. ATB is forecasting real GDP growth of 3.2 per cent this year, followed by a still-healthy expansion of 2.1 per cent in 2018.

Altus Group reports that total commercial real estate investments in Calgary in the second half of 2017 increased 24 per cent from a year earlier to more than $1 billion.

Calgary’s industrial vacancy rate is projected to fall from the current 7 per cent to 6.1 per cent by 2018, fueled by demand for distribution space. The retail vacancy rate dropped to 2.9 per cent in the third quarter, with most of the recovery in suburban malls.

And the multi-family market is also tracking up. Bob Dhillon, founder and CEO of Mainstreet Equity Corp., Calgary’s biggest landlord who specializes in mid-level rentals, said rents appeared to have hit bottom.

“Every indicator is showing that things have bottomed and bounced off the bottom,” Dhillon said.

Investment play: Multi-family rentals and well-placed retail. In the first six months of this year, 16 of the 22 apartment buildings that sold went for an average of $114,600 per door, the lowest price of any major Canadian city.

In retail, look for opportunities in the southwest suburbs, where the retail vacancy rate is 1.7 per cent and no new space was added this year. Southwest lease rates are in a landlord-friendly range of $20 to $55 per square foot.

 

No. 5: Lethbridge

Confidence in Lethbridge’s commercial real estate market is strong, with the city recently ranked by Avison Young as Alberta’s strongest municipal economy for 2017. The Canadian Federation of Independent Business’ latest Top Entrepreneurial Cities Report placed Lethbridge 18th out of 121 centers.

More than 92,000 residents call Lethbridge home and the city has seen population growth of 10.8 per cent since 2011. Expansion projects are drawing new residents to the area. The City of Lethbridge has invested in the development of the Crossings, 60 acres of mixed-use land in West Lethbridge hosting large retail footprints. The city recently spent more than $41 million on construction of Phase 1 of the Crossings Leisure Complex. Phase 2 is set to be completed by 2019 and has a budget of nearly $110 million. Building permits across the city totaled nearly $1 billion over the last five years, and industrial and agricultural land in North Lethbridge is seeing a sizable piece of the action.

Investment play: While Lethbridge’s office and retail markets are currently the city’s best-performing sectors, industrial real estate may take the lead in 2018. Industrial vacancy rates rose slightly to 6.2 per cent in 2016, but the rate declined to 4.4 per cent this year and should remain relatively tight in 2018. North Lethbridge appears the best bet for both commercial and industrial investments.

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Update #2

 

CHANGE 1: QUALIFYING RATE STRESS TEST TO ALL NON INSURED MORTGAGES

 

Non insured mortgage consumers (buyers with a 20% or greater down payment) must now qualify using a new minimum qualifying rate. The minimum rate will be the greater of the five-year benchmark rate published by the Bank of Canada OR the lender contractual mortgage rate +2.0%.

How does this affect the mortgage consumer with a down payment of 20% or more? The biggest impact will be on the amount in which the homebuyer will be able to qualify. Previously, the homebuyer qualified at the rate offered by the lender. Now, the homebuyer must qualify at the benchmark rate which is the higher of the Bank of Canada Rate (currently 4.89%) OR the rate from the lender plus 2%. This applies to all terms, fixed and variable rates.

 

For example:

Mortgage Amount $400,000
If Contract Rate is 3.44%

 

BEFORE CHANGES


Monthly Payment $1,985.00
Minimum Income* $70,000

 

AFTER CHANGES


Benchmark Rate 5.44% (3.44% + 2%)
Monthly Payment $2,427.00
Minimum Income* $85,000

*The above is based on 35% GDS RATIO (Gross Debt Service Ratio) and a 25 year amortization.

STRESS TEST SUMMARY


UNINSURED MORTGAGES Homebuyers/owners qualify for a mortgage using the benchmark rate, which is the Bank of Canada rate (currently 4.89%) OR the lender rate +2%, whichever is greater.

 

INSURED MORTGAGES You must qualify for a mortgage at the Bank of Canada rate (currently 4.89%)

 

OSFI has implemented 3 new mortgage rule changes starting January 1, 2018

 

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Update #1

 

MORTGAGE TERMS YOU NEED TO KNOW

 

Insured Mortgage / High Ratio Mortgage = Less than 20% down payment

Non Insured Mortgage / Conventional Mortgage = 20% or greater down payment / equity

Bank of Canada Rate = the 5 year fixed posted rate (currently 4.89%)

Contract Rate = the actual rate offered by the lender to the consumer

Benchmark Rate/Qualifying Rate = Stress Test: Bank of Canada Rate OR Contract Rate +2%, whichever is greater

LTV (Loan To Value) = the size of a mortgage compared to the value of the property

OSFI has implemented 3 new mortgage rule changes starting January 1, 2018

 

The Red Door Mortgage Group - Mortgage Architects will continue to update you as new information arises on the regulatory changes announced by the Office of Superintendent of Financial Institutions (OSFI) on October 17th 2017.

We are starting with a series of 4 emails breaking down what you need to know.

 

 

APRIL DUNN

Mortgage Broker/Owner
The Red Door Mortgage Group - Mortgage Architects

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Fall is in the air and with the cooler temperatures heading our way, here are a few "to-dos" to keep you and your family, healthy, safe and warm!


1. Vacuum out your dryer vent and make sure the flaps can close fully on the exterior. You'll save your home from potential fire risk and cold air ingress.


2. Check your furnace (or have a company come by for a fall service). Make sure it turns on properly, the filter is clean and while you have that vacuum out, give it a good clean. It's best to know it works before you need actually need it.


3. Check your fireplaces. If you have a gas fireplace, clean the glass, start up the pilot and make sure everything is working before the season starts. If you have a wood burning fireplace, have someone come by and take a look at the chimney and give it a good clean.


4. Check your smoke detectors and co detectors. If you have any gas appliances in the home (furnace, hot water, fireplace, stove) you should have a co detector on each floor!

 

Compliments of 

 

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